Market Risk and Divorce

April 22, 2009

Market Risk and Divorce

One of the biggest issues in divorce involves the liquidity of the assets. In a typical divorce, there will be a house, bank and investment accounts, and retirement assets. The house and retirement accounts are not readily convertible into cash (especially in this market). The bank and investment accounts are cash equivalents. A good divorce settlement will attempt to match the needs of each party to the liquidity of the assets awarded to them in the divorce. Thus, if one party will need cash to go back to school or fund a new home purchase, he or she should be awarded enough liquid assets to accomplish this goal. At the same time, however, market risk is inherent in less liquid assets. For example, until recently, real estate was a phenominal investment, but in the last year, prices have declined substantially, and there is a chance that it will be difficult to sell the home.